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Basic analytics of multilateral lending and surveillance

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  • Hagen, Rune Jansen

Abstract

I analyse the role of multilateral financial institutions in a world of global capital markets assuming that they have an informational advantage over private lenders in the market for sovereign debt. I show that the adverse selection problem in this market may be solved through certification if the multilateral agency does not care too much about borrower country welfare. However, with lending the private information of the agency will be revealed whatever its weighting of borrower welfare vs. private lenders' profits. Multilateral lending on concessional terms also alleviates the moral hazard problem -- that investment in creditworthy borrowers is reduced as private lenders seek to avoid ex post default by constraining credit.

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  • Hagen, Rune Jansen, 2009. "Basic analytics of multilateral lending and surveillance," Journal of International Economics, Elsevier, vol. 79(1), pages 126-136, September.
    • Handle: RePEc:eee:inecon:v:79:y:2009:i:1:p:126-136
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    Cited by:

    1. Marchesi, Silvia & Sabani, Laura & Dreher, Axel, 2011. "Read my lips: The role of information transmission in multilateral reform design," Journal of International Economics, Elsevier, vol. 84(1), pages 86-98, May.
    2. Nordtveit, Ingvild, 2014. "Does better governance and commitment to development attract general budget support?," Working Papers in Economics 02/14, University of Bergen, Department of Economics.
    3. Gurara, Daniel & Presbitero, Andrea & Sarmiento, Miguel, 2020. "Borrowing costs and the role of multilateral development banks: Evidence from cross-border syndicated bank lending," Journal of International Money and Finance, Elsevier, vol. 100(C).
    4. Fløgstad, Cathrin N. & Nordtveit, Ingvild, 2014. "Lending to developing countries: How do official creditors respond to sovereign defaults?," Working Papers in Economics 01/14, University of Bergen, Department of Economics.
    5. Rune Hagen, 2012. "Certified or branded?," The Review of International Organizations, Springer, vol. 7(2), pages 203-230, June.

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